Iowa School Finance Information Services Overview Benefits of solar - - PowerPoint PPT Presentation

Iowa School Finance Information Services

Overview

 Benefits of solar  Why don’t more schools use solar?  Economics of Solar  Evaluating Options  Questions

School Solar Benefits – 30,000 ft

 Reduce Electricity Expense, relieve pressure on

the General Fund.

 Reduce Carbon Footprint.  Tangible teaching tool for students studying

business, science, and economics.

 “Easier” than wind. No moving parts. Virtually

no maintenance. Steady production.

Why Don’t More Schools Use Solar?

 Return on Investment Very Long – As long as 40 years

to pay for itself, on a system with a 30 year lifespan. And that assumes zero percent interest (or 0%

• pportunity cost)

 Schools Don’t Make Profit

 Federal and State tax credits useless for a traditional

school project.

 Commercial facilities can also take advantage of

accelerated depreciation in some cases.

More appropriately, the question will soon become “Why didn’t schools install solar projects?”

Why Didn’t More Schools Use Solar?

NREL: Solar Photovoltaic System Pricing Trends, September 2014

Solar Prices Continue to Decline

NREL: Solar Photovoltaic System Pricing Trends, September 2014

Other Recent Anecdotal Evidence

 Projects typically going for $2.80/watt to $3.50 in Iowa  Large market for hog confinement facilities – Washington

County farmers alone received 20% of state tax credits last year – Most at or above $3.00/watt

 “SolarCity's costs today, including sales and general costs, are

$2.90 per watt, down 26 percent from just two years ago.” Daily Finance, Dec. 31, 2014

 Recent bid activity, as low as $2.50 per watt on cash basis, and

deals in progress as low as $2.00.

Persistent Issues

 Even though solar prices have declined, the cost of

the cells themselves becomes a smaller and smaller share of the total project cost.

 Schools remain disadvantaged from not being able

to utilize the tax credit.

 Many schools have utilized geothermal – but rate

changes may be increasing burden on General Fund.

Recommended Process for “Going Solar”

 What are your objectives?

 What defines your breakeven?  Do you need 100% payback, or are general fund pressures such that

smaller payback works?

 Work with EPC, consultant, or ISFIS to:

 Analyze your electricity requirements  Analyze your tariffs

 Net Metering?  Investor Owned Utilities – Alliant almost always works, Midam is a trick  REC’s generally receptive, but Municipal utilities can be a challenge.

 Go or No Go? – Find out the Price/Watt required to make your

project work. If it’s below $2.00 or so, it probably isn’t worth pursuing.

Go or No/Go Application – Determine System Capacity The 1400 Rule

KWH Price/KWH Cost January 56300 0.07 3,941 $ February 49980 0.07 3,499 March 43180 0.07 3,023 April 43290 0.07 3,030 May 50130 0.07 3,509 June 57520 0.07 4,026 July 45000 0.07 3,150 August 33360 0.07 2,335 Septembe 50130 0.07 3,509 October 43290 0.07 3,030 Novembe 43180 0.07 3,023 December 49980 0.07 3,499 Total KWH 565,340 39,574 $ DIVIDE BY 1,400 KWH/Watt Max Capacity 400 KW

Go or No/Go Application Future Electricity Costs Vs. Future Savings

Annual Electricity Bills Maximum Savings 2016 39,574 39,574 2017 40,761 40,563 2018 41,984 41,577 2019 43,243 42,617 2020 44,541 43,682 2021 45,877 44,774 2022 47,253 45,893 2023 48,671 47,041 2024 50,131 48,217 2025 51,635 49,422 2026 53,184 50,658 2027 54,779 51,924 2028 56,423 53,222 2029 58,115 54,553 2030 59,859 55,917

Inflation Increases Costs, and Degradation Decreases Output

Go or No/Go Application What Price Will You Pay To Break Even

The Most You Can Save Cost/ Watt to Break Even 5 Year 208,013 0.52 10 Year 443,360 1.11 15 Year 709,634 1.77 20 Year 1,010,899 2.53 25 Year 1,351,753 3.38

Go / No-Go Sensitivity

KWH Price/KWH Cost Annual Electricity Bills Maximum Savings The Most You Can Save Cost/ Watt to Break Even January 56300 0.07 3,941 $ 2016 39,574 39,574 5 Year 208,013 0.52 February 49980 0.07 3,499 2017 40,761 40,563 10 Year 443,360 1.11 March 43180 0.07 3,023 2018 41,984 41,577 15 Year 709,634 1.77 April 43290 0.07 3,030 2019 43,243 42,617 20 Year 1,010,899 2.53 May 50130 0.07 3,509 2020 44,541 43,682 25 Year 1,351,753 3.38 June 57520 0.07 4,026 2021 45,877 44,774 July 45000 0.07 3,150 2022 47,253 45,893 August 33360 0.07 2,335 2023 48,671 47,041 Septembe 50130 0.07 3,509 2024 50,131 48,217 October 43290 0.07 3,030 2025 51,635 49,422 Novembe 43180 0.07 3,023 2026 53,184 50,658 December 49980 0.07 3,499 2027 54,779 51,924 Total KWH 565,340 39,574 $ 2028 56,423 53,222 DIVIDE BY 1,400 KWH/Watt 2029 58,115 54,553 Max Capacity 400 KW 2030 59,859 55,917

Recommended Process for “Going Solar”

 Determine how you will pay for it – Cash, Loan, Power

Purchase Agreements, combination?

 Issue an RFP – Get wide circulation and as many

bidders as possible. Invite respondents to visit your facilities, determine feasibility of rooftop vs. ground arrays, and determine interconnection arrangements.

Recommended Process for “Going Solar”

 RFP Considerations

 Broad enough to encourage lots of bidders  Narrow enough to dissuade cheaper products that will cause

trouble.

 Minimum 20 year warranty on solar panel production levels.  Minimum 10 year warranty on inverters.  Consider if 3rd Party warranties are needed, or if the companies are

large enough/strong enough to honor long term commitment.

 Installers with experience on commercial facilities.  All electrical services can be bundled into the RFP.  Make sure EPC/Installer is responsible for getting the

interconnection agreement in place.

 Ask for education applications, real time web-based reporting

systems.

Recommended Process for “Going Solar”

 RFP Considerations

 Multiple Options Preferable

 Require a cash price per watt if possible  Provide opportunity to vendors to provide a bundled financing

solution

 Disclose that options will be scored on a Net Present Value

basis using a defined discount rate (say, 4%)

Discussion of Financing

Options

Outright Purchase Standard bank loan or bond Traditional Leases Power Purchase Agreements (PPAs)

Direct Purchase or Loan

 Positives

 Economics are easy to determine.  Absolute price certainty.  Interest rates still historically low.  Lots of RFP interest.  No questions about capital projects eligibility.

 Negatives

 Potentially leaving money on the table. Federal and state tax

credits will not be in play.

 School takes risk of future value (small risk).

Traditional Equipment Leasing

 Generally are considered a “disqualified lease”, so lessor will not

receive federal and state tax credits.

 Less risk of technology advances making you wish you’d waited –

after some years you can keep them or return them.

 Maximizes General Fund benefit – costs related to energy

conversation are payable from PPEL or Sales Tax. Every dollar of electricity saved is a direct General Fund savings.

 IN GENERAL: Compare a leasing alternative to the cost of

simply borrowing the money. Your cost of capital will generally be preferable, and this structure typically will not be efficient for schools.

Power Purchase Agreements

 Power Purchase Agreements (PPAs)

 Lease rooftop to company that owns and installs panels.  Allows for Lessor to use federal and state tax credits.  Lease payments are typically crafted in terms of the power you receive from

the panels, at a rate less than you pay now.

 PPAs ready for prime time?

 Distinction between buying electricity and leasing equipment. Is it a

distinction without a difference?

 Competes with direct instructional funds that benefit kids…teachers,

books, aids, broadband.

 Department of Education is reviewing documentation and issuing

guidance.

 PPAs may still work regardless for schools wanting to pay from General

Fund.

Power Purchase Agreements

 Other Considerations

 PPA providers might make the following pitch.

“We will put panels on your roof. In 20 years, you’ll own them. Until then, you will pay less than you pay now!”

 What’s wrong with the pitch?

 Do not compare the cost of solar with your current electricity

price.

 Compare solar with your next best purchase option.

 Local Investor Groups

 May be your best chance for maximizing benefits of tax credits.  PR Risk with using local investors.

Budget Impact General Fund Vs. All Funds

(Illustration Purposes Only)

$(400,000.00) $(200,000.00) $- $200,000.00 $400,000.00 $600,000.00 $800,000.00 M-15 F-17 N-18 A-20 M-22 F-24 N-25 A-27 M-29 F-31 N-32 A-34 M-36 F-38 N-39

25 Year Cumulative Cash Flow (All Funds)

• 200,000

400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 May-15 Dec-16 Jul-18 Feb-20 Sep-21 Apr-23 Nov-24 Jun-26 Jan-28 Aug-29 Mar-31 Oct-32 May-34 Dec-35 Jul-37 Feb-39 Sep-40

25 Year Cumulative Cash Flow General Fund

Realtime Online Information Typically Available

Factors Affecting Viability

 Size of Facility

 Bigger => Lower capital cost per watt  Smaller => Greater savings per watt

 Status of Sales Tax/PPEL

 Stressed => Short term lease has higher financing costs, but still viable  Surplus => Perfectly marries the schools ability to produce General Fund

savings by saving energy costs.

 System Type

 Flat roof => Longer term PPAs and Leases viable  Sloped roof and Ground Arrays => Property tax implications make it tricky

ISFIS Will Help Evaluate Project

 Regardless of where you are in the process.  Regardless of whether you choose a leasing

arrangement, PPA, or outright purchase.

 At a minimum, please send us your RFP if you go out

to bid.

Questions?

Jon Muller, Partner Iowa School Finance Information Services 1201 63rd St. Des Moines, IA 50311 515.251.5970 Ext 7 515.577.2136 (cell) jon@iowaschoolfinance.com